MemberOctober 20, 2020 at 5:08 am
StartEngine has been dropping clues about this for a while…and I just got an email inviting me to open an account for their secondary trading platform.
I’m impressed they are going live this fast. I know there were some tweaks and rules guidance out of the SEC recently around this but I’m surprised to see the players respond so quickly.
As far as I can tell this is structured like just another ATS and they are a standard broker-dealer, which would imply we can move funds in and out at will (no holding period). With a new (and early) exit option I think this is going to be huge for CF/A+ investors and platforms generally.
AdministratorOctober 26, 2020 at 9:31 am
Agreed – I think this is a big first step and will be very interested to see how it all plays out.
Netcapital has had a live secondary transfer platform for a few years, and I’ve done a number of transactions on that (mostly purchasing additional shares at discounted prices).
Increased liquidity is generally a good thing, and I think it’s great to at least give investors the option to sell their shares should they really need the money for whatever reason.
However, a part of me does worry that secondary markets will be taking away one of the inherent advantages of startup investing, which is the fact that they are illiquid investments and so investors generally didn’t have the option to sell in the past. I’m thinking of the numerous examples of startups who may have had decent gains (say 5X-10X), and perhaps reached tougher times – just thinking for myself, I might not have had the nerve to hold on to some of those investments after a decent gain, although as we know with power law returns, it’s really the 100X-1000X+ investments that will make all the difference.
And so I do worry a little that investors might be tempted to take smaller gains off the table, hurting their longer-term investment portfolio potential.
As such, I personally plan to use the secondary platform primarily as a way of looking at deals that I am already invested in (or perhaps missed) and buying additional shares, rather than using it as an early-exit option.
I think the market inefficiencies will be significant at the start, so I’d expect wide bid-ask spreads.
Also, while Reg A+ shares will be freely tradeable, Reg CF shares are still restricted by a 1-year lock-up where investors can only sell Reg CF shares either to accredited investors or other qualifying entities (e.g. back to the issuer).
Long story short, I think this is a great first step and I’m excited to see where it leads.
MemberNovember 14, 2021 at 2:05 pm
Dusting off this old post…
Follow up: I tried for nearly 2 months following this discussion to actually fund and trade on StartEngine Secondary. It was a complete mess. Their bank API was f’d up and customer support was *terrible*. Things may have changed since but I’m out.
There are now 3 companies listed but liquidity looks pretty low. And StartEngine is no longer one of the listed companies (hmmm).
But that’s not stopping them from doing another raise, however.
StartEngine is now going for another $55M at a $786M valuation via Reg A+.
I love this space, but based on my experience noted above (not to mention the valuation) I’m not putting my bet on StartEngine. That decision is made easier by the fact that I was able to invest in Wefunder back in June.
- This reply was modified 2 weeks, 5 days ago by Jason.
AdministratorNovember 17, 2021 at 9:29 am
Hey Jason – yeah, liquidity is (one of) the huge issue(s) right now. i.e. There simply aren’t enough people buying and selling, so it’s a pretty inefficient marketplace.
I think some of that may also depend on the companies.
There are other secondary marketplaces now coming online, though, and I expect StartEngine will have quite a few competitors in the next year. Then again, “competition” doesn’t mean a whole lot right now, since you can only buy and sell the company you want on the platform that has it, so it won’t be like a stock listed on the NYSE or NASDAQ where you can buy it from any brokerage. So I think it will depend more on the companies that are listed rather than the actual platform (such as StartEngine) itself.
Netcapital is partnering with Rialto to redo their secondary marketplace.
Republic announced that if they don’t find a suitable secondary partner by next year, they will launch their own.
KoreConX has also alluded to their secondary marketplace to allow security holders who use them as their Transfer Agent to be able to trade, potentially powered by their blockchain technology (not sure if they’d also partner with Rialto or what).
Then of course there are the broker-dealers, like Rialto and others.
In short – it’s going to take some time. And the secondary private markets will never be AS liquid as the public markets for sure, so there will always be some inefficiency to buy or sell prior to having something that has a large trading volume.